“The basis” is a term sometimes used to describe the difference between the value of a particular type of property and a future value of that property. For example, many traders and other market participants may actively monitor the basis of securities such as government-issued bonds or other obligations. They may monitor this difference by following the price of the current cash or “spot” price for a security and the current price of a futures contract for the same security. This difference can be actively monitored, and in many instances may be traded.
To date, however, known basis trading has generally involved separately conducting multiple transactions. For example, persons wishing to trade the basis in a security typically do so by purchasing (or selling) the security and by then separately entering into a short (or long) position in a security futures contract. In addition to inconvenience and inefficiency, this approach subjects a trader to market slippage and other disadvantages. In some cases, cash market treasury dealers will quote the basis to their customers directly. Although this permits the customer to trade the basis at one price (from the customer's perspective), the positions must still be broken out into the cash and futures positions by the dealer or by others on the dealer's behalf, thereby leaving the customer indirectly subject to slippage and other disadvantages.